The number one mistake that new government contractors make is not having a plan. It is tough to break into this market. The best way to do so is to have a plan. Now, I am not talking about a set-aside here. I am talking about a plan on how you believe you can break into government contracting. When companies wanting to get started as a government contractor reach out to me, I always ask what strategy are you planning on using to get into government contracting. And you know what happens next? DEAD SILENCE. Once I start talking about the necessity of having a plan or strategy then the light bulb comes on and they understand where I am coming from.
You need to have a plan. There are basically three strategies that can be used.
Cost Leadership Strategy
The first approach is the Cost Leadership Strategy. In this approach, you plan on becoming a low-cost producer for your industry. A lot of businesses believe that this strategy works best for government contracting because the government wants its products and services at the lowest price possible. However, lately, the Government has been going away from the lowest price and seeking the lowest price technically acceptable. Why? Well, one of the major reasons is that contractors have been low balling projects in order to receive the contract. This happened a lot in the last recession. Contractors would low ball the offerors and then fail to perform on the contract or worse performed poorly. As you can imagine this is not a good thing. It is not good for the government contractor as well as it is not good for the Government.
Emphasis is on Lower Costs, Not Lower Selling Prices.
With this approach, the emphasis is on lower costs, not on lower selling prices. In order to succeed using this method, you need to have efficient-scale facilities, vigorous pursuit of cost reductions from experience, tight cost and overhead control, and avoidance of marginal customer accounts. In reality, the only way this strategy works if you are the BEST. You can reduce the selling price down below any other businesses’ operating costs.
Next up is the Differentiation Strategy.
The Differentiation Strategy is the second method that we will discuss today. If you are using this strategy, then you are stating that you are different than every other business. The emphasis here is on brand advertising, design, service, quality, and new product development. When using this strategy, you are saying that you are unique in the industry. This uniqueness must be a feature in which customers are willing to pay a premium price. The differentiation does not have to be anything outlandish. It can be as simple as the best customer service in the industry. It could also be the speed in which you fulfill customer orders. The point is that differentiation only has to be something that the customers are willing to pay a larger selling price than that of the cost leader.
Differentiation Leads to profitability but NOT market share.
Differentiation creates the perception of exclusivity which is incompatible with a high market share. Thus, a business using a differentiation strategy can focus on customer loyalty instead of attempting to create a large market share for instance. Next, we will talk about the third strategy and that is called “Focus Strategy”.
Businesses using the focus strategy ignore most of a product or service market and focuses only upon a particular niche. This niche could be a geographic market, a segment of a product line, or a particular buyer group.
When using this strategy your market share will be limited just like differentiation strategy. When using this strategy, it often involves a trade-off between profitability and sales volume. If you plan on using this strategy, then you have to be sure that the market being served is absolutely different than the main market. If you market is not different then you will not succeed.
Today, I have talked about the three generic strategies that businesses can have for a product or service. It is up to you to pick one and if you do you stand a good chance of being profitable. However, if you fail to implement that strategy well then you will most likely have low profitability or possess not competitive advantage. Lastly, your market share will be destroyed by businesses with a competitive advantage. That is why it is extremely important to wisely select a business strategy and implement that strategy well.
I hope that by learning about these three generic strategies you can understand the importance of having the right strategy for your business when wanting to become a government contractor.
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